Nomura, Deutsche Bank, Morgan Stanley, Moody's raise India growth forecasts

The upward revisions in the growth forecasts come after growth in April-June came in at 7.8 percent.

Hours after the statistics ministry said that India's GDP grew by 7.8 percent in the April-June period, the fastest in four quarters, several economists revised their growth forecasts upwards, with Nomura's 40-basis-point increase for 2023-24 the largest of the lot.

"...actual GDP growth in April-June and tracking estimates for July-September are higher than our current baseline. As such, we are raising our 2023 GDP growth projection to 6.3 percent from 5.9 percent previously and 2023-24 at 5.9 percent from 5.5 percent previously," Nomura economists Sonal Varma and Aurodeep Nandi said in a note on September 1.

Deutsche Bank, too, raised its whole-year growth forecast for India by 20 basis points to 6.2 percent, while Morgan Stanley increased it to 6.4 percent. Others such as Motilal Oswal Financial Services, are expected to follow suit.

One basis point is one-hundredth of a percentage point.

"Due to better than expected growth in April-June, we will soon revise up our 2023-24 real GDP growth forecast, from 5.6 percent forecasted in June," said Nikhil Gupta, chief economist, Motilal Oswal Financial Services.

Moody's Investors Service made a huge increase in its India growth forecast for the calendar year 2023 — to 6.7 percent from 5.5 percent.

For 2023-24, the government and the Reserve Bank of India (RBI) expect India's GDP to grow by 6.5 percent.

Also Read: CEA Nageswaran says Q1 GDP growth number ‘good’, maintains FY24 forecast of 6.5%

Cause for optimism?

The upward revision in the growth forecasts comes despite the April-June GDP growth figure of 7.8 percent being broadly in line with the consensus estimate of 7.7 percent. However, economists who had pencilled in weaker numbers for April-June have been left surprised.

"The robust momentum in domestic demand conditions continues to reflect in the GDP numbers, which have surprised on the upside for two consecutive quarters," Morgan Stanley's Upasna Chachra and Bani Ganbhir, who expected growth at 7.4 percent, said.

"We expect the resilience to be sustained, bolstered by the confluence of favourable structural and cyclical drivers. Stronger balance sheets across economic agents and the government's pro-active supply-side response ushering in structural reforms are likely to provide a secure foundation to a strong multiyear growth cycle. As such, we mark to market GDP growth to 6.4 percent (versus 6.2 percent earlier) for 2023-24," they wrote.

Beyond 2023-24

While Nomura made the biggest upward revision to the 2023-24 growth forecast, it also lowered its expectations for 2024-25 to 5.6 percent from 6.5 percent.

Moody's did the same for calendar year 2024. "Since the second quarter out-performance creates a high base in 2023, we have lowered our 2024 growth forecast from 6.5 percent to 6.1 percent. Given the robust underlying economic momentum, we also recognise further upside risk to India's economic growth performance," Moody's said on August 31 in an update to its Global Macro Outlook report.

However, Deutsche Bank continues to see growth rising to 6.5 percent next year.

According to Kaushik Das, Deutsche Bank's chief economist for India and South Asia, India's growth is likely to slow down in the coming quarters of 2023-24 due to the lagged impact of monetary policy tightening, intensification of the global growth slowdown, fading of domestic pent-up demand, and possible downside risks from weather-related factors.

At the same time, the government's capex push and any incremental pick up in private investment following rising capacity utilisation levels could help support growth of around 6.2 percent.

"The last point is important, in our view. Indian corporate sector has not invested meaningfully for almost a decade now; with capacity utilisation improving, corporates may consider investing in fresh capex for the next cycle," Das added.

With growth set to slow down in the coming quarters – even the RBI sees GDP growth falling to 6.5 percent in July-September, 6 percent in October-December, and 5.7 percent in January-March 2024 – Nomura expects the central bank's monetary policy committee to reduce the repo rate by 100 basis points in 2024, with the first rate cut pencilled in for February.